Modelling energy and non-energy substitution: A brief survey of elasticities

Modelling energy and non-energy substitution: A brief survey of elasticities

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Article ID: iaor20116375
Volume: 39
Issue: 8
Start Page Number: 4601
End Page Number: 4604
Publication Date: Aug 2011
Journal: Energy Policy
Authors:
Keywords: simulation, economics, geography & environment
Abstract:

Estimating the degree of substitution between energy and non‐energy inputs is the key for any evaluation of environmental and energy policies. Yet, given the variety of substitution elasticities, the central question arises as to which measure would be most appropriate. Apparently, Allen's elasticities of substitution have been the most‐used measures in applied production analysis. In line with , this paper argues that cross‐price elasticities are preferable for many practical purposes. This conclusion is based on a survey of classical substitution measures, such as those from Allen, Morishima, and McFadden. The survey highlights the fact that cross‐price elasticities are their essential ingredients.

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